All posts in Macroeconomics-LP

Exchange rates can be understood as the price of one currency in terms of another currency. However, just like for goods and services, we must take into account what determines that price, since governments can influence it, and even fix it. Exchange rate regimes (or systems) are the frame under which that price is determined. From a purely floating exchange rate, to a central bank determined fixed exchange rate, this Learning Path explains the basics of each of these regimes.

We’ll start by learning about the concept itself, and will continue with each regime type, starting with the ones with highest monetary policy independence, and moving to less independent regimes.Definition:

Inflation and unemployment can be very harmful to the economy, and so governments will always try to control them by implementing economic policies. However, knowing how a problem originates is always helpful when trying to fix it. This is the reason why economists have created an incredible amount of theories and economic models that try to explain how these inflation and unemployment behave.

In this Learning Path we’ll take a look at a few economic models that explain, at least to some extent or in some given context, inflation and unemployment.

There is a relationship between inflation and unemployment that can be easily analysed. Governments around the world take this relationship very seriously, since there will always be a trade-off when implementing economic policies aiming either at reducing unemployment or keeping inflation at bay. Even though this relationship was first analysed by Alban William Housego Phillips in 1958, it has since evolved, taking into consideration adaptive and rational expectations.

In this Learning Path, we’ll learn about the Phillips curve and how expectations have made it evolve.

Early developments:

Phillips curve, which shows the relationship between inflation and unemployment;

NRU and NAIRU, two different views of the unemployment at equilibrium.

Inflation and unemployment are probably, along with GDP, two of the most used economic indicators of how well a country is doing. Inflation measures increases in the price levels, which can hurt the economy in multiple ways when not under control. Unemployment measures the percentage of people in a country that, being able to work, are unemployed. Both are to be carefully measured, in order for governments to be able to keep them under control.

In this first Learning Path of our series on inflation and unemployment, we’ll learn about what these two concepts are, and how to tackle them.

When we study macroeconomics, the easiest and first approach is to analyse closed economies. These are defined as countries that are self-sufficient and autartik, meaning they do not trade with other countries, and rely only on what they produce. There is a widely used analogy by Economics professors: Robinson Crusoe’s island. If we think about it, Robinson Crusoe was unable to trade, and its consumption and production were closely related. This one-man economy is the easiest way to understand closed economies.

In this Learning Path we’ll learn about basic concepts needed in the study of macroeconomics. The use of a closed economy is for simplicity’s sake.

Economists study macroeconomics as a way to understand how the world works, and how to analyse any country’s economy . In other words, in contrast to microeconomics, which analyses a consumer or a firm’s economy, macroeconomics analyses the economy as a whole. Therefore, to understand how the economy of a country works, we must understand various macroeconomic indicators, as well as national accountings (used to measure a country’s growth), unemployment rate, inflation, etc.

In this Learning Path, we’ll see the basic concepts needed to start studying any country’s economy. Even though the analysis should start by assuming either a closed or open economy, this LP omits such concepts, and gives just the very basic notions required to study macroeconomics. Think of this LP as an introduction to all other LPs in our series on Macroeconomics.